Jenkins: Lost Decade, Revisited

Bitter politics over taxing and spending will be our lot for years to come.

By

Holman W. Jenkins, Jr.

Jan. 1, 2013 6:45 p.m. ET

We said it four years ago: A lost decade was coming, though not as some mechanical inevitability of the housing bust. Rather, that financial crisis put politics in charge in a way that would burden the economy's growth for years to come.

The latest fiscal cliff half-deal reached early Tuesday is not proving to be a constructive episode. It is not leading to some great bipartisan whoosh of consensus to ensure our future prosperity so we can afford all the entitlements we can afford. There will be no grand bargain.

The fiscal cliff turned into just another trial of strength by advocates of the welfare state to prove the welfare state is not rationally reformable in advance of a funding crisis. But we already knew that.

Entitlement cuts will come, you can be sure, but here's a secret: There is very little fiscal or political or solvency value in enacting today cuts that won't take effect for years.

The bond market, as of now, judges the U.S. government good for its debts. Whether the market continues to believe in our credit-worthiness doesn't depend on whether we hike the Medicare age today for retirees decades hence. The market's confidence in the U.S. to service its debt (without recourse to inflationary money printing) is much more affected by expectations of long-term growth than by dog-and-pony exercises on spending that future Congresses will revisit umpteen times in the future.

Let us repeat for emphasis: The crisis we fear, when investors no longer will finance our deficits, doesn't begin with a failure to cut entitlements or raise taxes on the rich. It begins with an unexpected, persistent failure of the economy to grow.

This would quickly precipitate the political class into a dilemma that ends naturally in the printing of money.

Nothing proposed by the negotiators in terms of tax hikes (Mr. Obama's agenda) or spending cuts (the alleged GOP agenda) would really help. We kid ourselves if we think we can settle these issues today. Arduous and bitter politics over taxing and spending will be our lot for decades to come.

One thing would make a difference: whether we can get the growth machine going again. Policy-wise, one exception to present futility would be true tax reform, which both parties have paid lip-service to, unconvincingly. But we won't get true tax reform out of a divided Washington with Mr. Obama in charge. That much is clear. Mr. Obama has a copybook agenda, to expand government regardless of the historical moment the country finds itself in. He's sticking to it.

A decent substitute agenda, however, would be a moratorium on any tax hikes at all. Make the now-prevailing rates for both the "middle class" and "the rich" permanent. Secondly, help the economy get back to normal by anticipating it getting back to normal. Make it clear we want no more adventurous and unorthodox Fed actions. Stop the excessive subsidies to unemployment that have been the essence of Obamaism.

Don't take our word for the latter's role in prolonging the unemployment crisis. Paul Krugman, during a radio interview on WNYC two years ago, was confronted by caller Alex, who expressed gratitude for 99 weeks of unemployment benefits: "The jobs that are available," the caller explained, "they seem not to be as good as they used to be. . . . I think these big companies and corporations are taking advantage of the situation."

Anyone, by the way, who detects a slur against President Obama in these words should consult the New York Times of Dec. 3, 2012, which stated as a reportable fact: "In effect, he is trying to leverage what he claims as an election mandate to force Republicans to take ownership of the difficult choices ahead."

Mr. Obama chooses not to be president of all of us, seeking an affordable, livable solution to our long-term fiscal challenges. He chooses to be president of the country's spending interests, always decrying the prospect of "heartless" Republican cuts.

That's his prerogative. That's why, given all the ways he could have picked to spend his leadership capital, he chose to stake a battle on a fiscally negligible but politically potent tax hike on "the rich." Mr. Obama may even be shrewd, judging real reform impossible in the absence of a genuine fiscal crisis.

Ironically, of course, if he really wanted to be protector of those who depend on a government check, he would concern himself right now with growth above all. Whatever the struggles to come, a bigger pie goes further than a smaller pie. Ah, but that would conflict with his political strategy, "in effect, to leverage what he claims as an election mandate to force Republicans to take ownership of the difficult choices ahead."

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